Game theory has always been relevant to American politics, and politics generally. The basic rule in a multiple player game is “create a coalition that has a majority of the voting interest,” and you win. Because of division of powers, in the US, this is more complex than in a parliamentary setting. But let’s take as an example the US House of Representatives.

Imagine for a moment that the House has the following breakdown:

45% Democrats

45% Republicans

10% t-party Republicans

I don’t think that set-up is far from the truth, but how would anyone get a majority there? In this stylized example, there are only three ways to do it:

Republicans ally with the t-party. (And any proposal gets shot down by Obama, if not the Senate.)

The fourth possibility is that nothing happens, which has been my default view for some time, and we go over the cliff and hit the debt ceiling.

This is why a small part of our legislators can play such a big role. One can argue that it is unfair, but they are playing by the rules, and the results are not all that different from what European countries with multiple parties experience. You have to assemble a coalition in order to govern. Often it is one small party near the center or the edges that holds the balance of power.

Thus, in situation like this, how could it get resolved? Obama needs to talk to the Tea Party and agree to something mutually acceptable. Ronald Reagan reached across the aisle to Democrats. Bill Clinton did deals with Republicans. Obama needs to do a deal with the t-party, or strike a deal that non t-party Republicans and Democrats could accept.

My view here is different than most, but in my view there are two more intransigent parties here: Obama and the t-party. If the the non-t-party Republicans and Democrats in the House could agree, that proposal could go through the Senate, and be signed by the President. Boehner should not negotiate with Obama, but Pelosi.

The alternative is going over the fiscal cliff, which I have argued for a longish amount of time might not be so bad, though Congress will regret ceding control of spending to he Executive Branch. At least the budget will be balanced, and we will have more certainty on economic policy. Also, it will force a better negotiation, and sharpen the concerns of voters.

If we really want to improve our nation, we need to take action to remove the entrenched powers of the Republicans and Democrats, so that other parties can get some representation. We need to have laws such that anyone can submit a redistricting map, and so long as the map meets the test of other laws, the map with the shortest amount of internal boundaries wins. Maryland, which is a poster child for corruption, would be far better governed if the power was taken out of the hands of entrenched political interests, and given back to the people. Or at least a computer, which can be neutral.

Governments mostly reflect cultures, leaving aside gerrymanders and such. If we want to improve the US, we need to improve our own moral nature individually. If we are weak and lazy as individuals, so will our government be, and it will be our fault collectively that we let a great nation fail. If a culture fails, the nation will not be far behind.

Share this:

Related

1 Comment

I agree with the anti-gerrymandering comments, but even without gerrymandering, liberals are already underrepresented in the U.S. House because they run up excess popular vote in dense urban areas. In the last election, Democrats actually won the popular *congressional* vote while Republicans picked up a majority of seats.

I disagree that the T-party has good leverage in an accurate zero-sum game theory model of the negotiation. In fact both non-T Republicans and Democrats will be happy to blame the T-party for going over the cliff, and I expect the blame will stick, party on the basis of truth and partly on the basis that most T-party voters are low-information voters, very much swayed by simplistic, media narratives.

Gerrymandering hurts the most because its biggest effect is to cement re-electability by the party in control already in each area. That means real challenge is more likely to come from the primary, and hurting the potential primary opponent is the game theory optimum. So game theory says here that we go over the cliff, Democrats gain from that in total, non-T Republican incumbents gain security from that, T-party loses, and the country loses.

This piece has kind of a long personal introduction to illustrate my point. If you don’t want to be bored with my personal history, just skip down to the next division marker after this one. =–=-=-=-=-==–==-=–=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-=-= There will always be a soft spot in my heart for people who toil in lower level areas of […]

This piece is an experiment. A few readers have asked me to do explanations of simple things in the markets, and this piece is an attempt to do so. Comments are appreciated. This comes from a letter from a friend of mine: I hope I don’t bother you with my questions. I thought I understood […]

I was reading an occasional blast email from my friend Tom Brakke, when he mentioned a free publication from Redington, a UK asset management firm that employs actuaries, among others. I was very impressed with what I read in the 32-page publication, and highly recommend it to those who select investment managers or create asset […]

At Abnormal Returns, over the weekend, Tadas Viskanta featured a free article from Credit Suisse called the Credit Suisse Global Investment Returns Yearbook 2015. It featured articles on whether the returns on industries as a whole mean-revert or have momentum, whether there is a valuation effect on industry returns, “social responsibility” in investing, and the existence […]

Brian Lund recently put up a post called 5 Reasons You Deserve to Lose Every Penny in the Stock Market. Though I don’t endorse everything in his article, I think it is worth a read. I’m going to tackle the same question from a broader perspective, and write a different article. As we often say, […]

I’ve generally been quiet about Bitcoin. Most of that is because it is a “cult” item. It tends to have defenders and detractors, and not a lot of people with a strong opinion who are in-between. There’s no reward for taking on something that has significance bordering on religious for some… even if it proves […]

This will be a short post. If we get a significant updraft in the price of oil, and Saudi production policy has not changed, you might want to sell crude oil price-sensitive assets. The marginal cost of production for a lot of crude oil that is shale related is around $50/barrel, and that is where […]

I get fascinated at how we never learn. Well, “never” is a little too strong because the following article from Bloomberg, Meet the 80-Year-Old Whiz Kid Reinventing the Corporate Bond had its share of skeptics, each of which had it right. The basic idea is this: issue a corporate bond and then package it with […]

I wish I could tell you that it was easy for me to stop making macroeconomic forecasts, once I set out to become a value investor. It’s difficult to get rid of convictions, especially if they are simple ones, such as which way will interest rates go? In the early-to-mid ’90s, many were convinced that […]

Here is the second part of my interview on RT Boom/Bust. It was recorded while the FOMC was releasing its statement, so I had no idea at that time as to what the announcement had been. The interview covers my view of Apple (not one of my strong points), Fed Policy, and what should value […]

David Merkel

Disclaimer:

David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves. Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures. Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions. Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.

Other Investing Links

Personal Links

Meta

Copyright David Merkel (c) 2007-2014
Disclaimer: David Merkel is an investment professional, and like every investment professional, he makes mistakes. David encourages you to do your own independent "due diligence" on any idea that he talks about, because he could be wrong. Nothing written here, at RealMoney, Wall Street All-Stars, or anywhere else David may write is an invitation to buy or sell any particular security; at most, David is handing out educated guesses as to what the markets may do. David is fond of saying, "The markets always find a new way to make a fool out of you," and so he encourages caution in investing. Risk control wins the game in the long run, not bold moves.
Even the best strategies of the past fail, sometimes spectacularly, when you least expect it. David is not immune to that, so please understand that any past success of his will be probably be followed by failures.
Also, though David runs Aleph Investments, LLC, this blog is not a part of that business. This blog exists to educate investors, and give something back. It is not intended as advertisement for Aleph Investments; David is not soliciting business through it. When David, or a client of David's has an interest in a security mentioned, full disclosure will be given, as has been past practice for all that David does on the web. Disclosure is the breakfast of champions.
Additionally, David may occasionally write about accounting, actuarial, insurance, and tax topics, but nothing written here, at RealMoney, or anywhere else is meant to be formal "advice" in those areas. Consult a reputable professional in those areas to get personal, tailored advice that meets the specialized needs that David can have no knowledge of.